Anonymised, illustrative composite. Same dissent, same shares, same transaction. The British Columbia statute fixes the value at the moment before the vote; the federal one fixes it at the previous day’s close. The two dates were $41,280 apart, and the clause underneath them was worth six times that.
At a glance
A British Columbia company sold its operating business by way of a sale of all or substantially all of its undertaking, approved by the shareholders at a meeting held on a Tuesday morning. Two years earlier it had sold a smaller division and had not yet redeployed the proceeds; $8,400,000 sat in a portfolio of listed equities and short-dated fixed income.
One shareholder held 720 of the 6,000 issued shares — 12% — and had opposed the sale from the announcement. He dissented. The dissent right on these facts comes from s.238(1)(e), which entitles a shareholder to dissent “under section 301 (5), in respect of a resolution to authorize or ratify the sale, lease or other disposition of all or substantially all of the company’s undertaking”.
Everyone in the room had run dissent and appraisal before, and everyone had run it federally. The buyer’s counsel prepared the valuation instructions on the federal timetable: value the shares as at the close of business on the day before the resolution. The dissenter’s counsel read the British Columbia definition and did not.
Overnight, and for reasons that had nothing to do with the transaction, the securities portfolio moved up $344,000. By 10:00 on the Tuesday it was worth $8,744,000. The resolution passed at 10:20.
Section 237(1) of the British Columbia Business Corporations Act defines payout value by trigger, not by a single date. In the case of a dissent in respect of a resolution, payout value is “in the case of a dissent in respect of a resolution, the fair value that the notice shares had immediately before the passing of the resolution”. Where dissent arises under a court order other than a s.291(2)(c) arrangement, it is “in the case of a dissent in respect of a matter approved or authorized by any other court order that permits dissent, the fair value that the notice shares had at the time specified by the court order”. And “notice shares” are defined in the same subsection as, “in relation to a notice of dissent, the shares in respect of which dissent is being exercised under the notice of dissent”.
The federal rule is a different moment. CBCA s.190(3) entitles a complying dissenter “to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted or the order was made”.
So the two statutes point in opposite directions across the same night. British Columbia values the shares at the last moment before the vote, on the day of the meeting. The CBCA values them at the previous day’s close. Whichever way value moved between those two points, one province’s dissenter is on the right side of it and the other’s is not.
Equity value at the previous day’s close was $18,556,000. Immediately before the resolution passed it was $18,900,000 — the whole difference being the overnight movement in the securities portfolio. The dissenting block is 12%.
Twelve per cent of $18,556,000 is $2,226,720. Twelve per cent of $18,900,000 is $2,268,000. The province of incorporation is worth $41,280 on this dissent, before anyone argues about anything else. That is not a large number on a deal this size, and it is the reason the date difference is usually invisible: it only shows up when value moves overnight, which it sometimes does.
The larger number was in the tail of the same definition. Payout value is determined “excluding any appreciation or depreciation in anticipation of the corporate action approved or authorized by the resolution or court order unless exclusion would be inequitable”. The buyer argued that the whole run-up since announcement — from $16,900,000 to $18,900,000 — was appreciation in anticipation of the sale and had to be stripped out, which would have put the dissenter at $2,028,000. The dissenter argued the movement reflected two things the sale had not caused: a customer renewal signed after announcement, and the securities portfolio, which is marked to a market that has never heard of this company. The gap between those two positions was $240,000 — nearly six times the valuation-date difference that had started the argument.
Settled at $2,208,000 without a court determination. The securities portfolio was conceded to the dissenter in full, because a listed portfolio marked to an external market is close to the hardest case against an anticipation argument. Part of the operating-business appreciation was conceded to the buyer. The “unless exclusion would be inequitable” qualifier did the work: it is what stops the exclusion operating as a mechanical rule and turns it into a question about which movements the transaction actually caused.
It is worth saying what the CBCA does not have here. Section 190(3) contains no anticipation carve-out at all. The federal answer to the same argument is reached through the meaning of fair value rather than through statutory words, which is a weaker place for a buyer to stand and a less predictable one for both sides.
The buyer’s valuation instructions had been issued on the federal date. Had the dissent gone to a court determination on those instructions, the report would have valued the shares as at the wrong moment, and the buyer would have paid for a second one. On a dissent of this size the appraisal cost is a meaningful fraction of the amount in dispute, and getting the valuation date wrong is the cheapest possible way to have to pay it twice.
The tell is a valuation instruction letter. If it says as at the close of business on the day preceding the meeting and the company is not federal, someone has used a federal precedent. Read the definition before the instruction goes out: British Columbia splits payout value by trigger, and one of the four branches sends you to a date the court itself sets, which is not a date any precedent can guess.
The second tell is a company holding marketable securities, cash above working requirements, or a foreign-currency book. Those are the balance sheets on which an overnight move is large enough to be worth the argument. On a business whose value is its operations, the two valuation moments will usually produce the same number, and the difference that matters is the anticipation carve-out rather than the date.
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